Global brokerage CLSA has reoriented its investment strategy, scaling back exposure to Chinese equities and reinstating India as its preferred market. The move comes after Donald Trump’s re-election sparked fears of renewed trade tensions between the US and China, alongside concerns about limited stimulus-driven gains in Chinese markets.

In a report titled “Pouncing Tiger, Prevaricating Dragon”, CLSA outlined the rationale behind its decision. The firm had tactically increased its allocation to Chinese stocks in October, fueled by optimism surrounding market rallies. However, this was labeled as a "cautious rental" rather than a committed long-term investment. The shift back to India underscores CLSA's confidence in the structural stability and growth potential of Indian equities.

Trade War Concerns Shift the Balance

Trump’s re-election has reignited uncertainty around US-China relations, with the potential for escalating tariffs and sanctions looming over Beijing’s economic recovery. CLSA noted that while China’s stimulus efforts sparked short-term optimism, they failed to address deeper market vulnerabilities. The MSCI China Index corrected by 10% in US dollar terms during the October-November period, paralleling a similar decline in the MSCI India Index.

Despite the corrections, CLSA stated it had avoided significant losses, as the firm prudently balanced its exposure to both markets. Rising US bond yields, which traditionally discourage investment in riskier markets, further weighed on China’s appeal.

India’s Resilient Growth Narrative

In contrast, India’s economic fundamentals continue to attract global investors. CLSA reinstated a 20% overweight on Indian equities, citing robust domestic demand, policy reforms, and the government's focus on infrastructure development. The brokerage emphasized India’s resilience against global macroeconomic headwinds, positioning it as a reliable investment destination amidst volatile markets.

Investor Sentiment Turns Cautious

While the initial enthusiasm for China’s market rally has waned, the Indian market’s long-term growth trajectory remains compelling. CLSA’s shift reflects broader investor sentiment favoring stability and consistency, especially during geopolitical uncertainty.

As global financial landscapes evolve, CLSA's recalibrated strategy highlights India’s growing prominence as a key player in emerging markets. The report concludes with a positive outlook for Indian equities, signaling renewed confidence in the country's ability to deliver sustainable returns for global investors.